Tara Perkins – Globe and Mail

From his office, the chief executive officer of real estate developer Diamondcorp looks south toward the towers of the Toronto skyline. But what Stephen Diamond sees is the extended expanse of tree tops between his office and the downtown core.

The houses beneath those trees are the reason the developer is comfortable making big bets on the city’s condo market. Unlike downtown Tokyo or London or New York, Toronto has a plethora of single-family homes in its core, he points out.

So although it is true that there are more condos under construction in Toronto than anywhere else in North America, he doesn’t see it as worrisome: It’s just the next phase of the city’s development.

His view sets him apart as fears grow about the health of the condo market in Canada’s most populous city, where developers are building at a record pace. But Mr. Diamond is confident enough that he has raised a new $130-million fund that will be used to build more condos.

“From an urban fabric point of view, Toronto is unique in the world,” Mr. Diamond said in an interview. “It’s one of the few cities that has both a very healthy core and low-rise single-family homes almost within walking distance of the core.”

Comment: It is SO nice to hear people who actually work in the real estate industry, building condos in Toronto, speak of the market. They tell a very different tale than the “experts” and pundits. Who do you believe more? Those who do this for a living, or those in the peanut gallery?

He believes that what is occurring is a necessary switch from building outward to building upward. “We’re not supplying too many units, we’re supplying them in a different form,” he said in an interview.

More than 6,000 newly built condos sold in Toronto in the first quarter, the highest number ever for the January-to-March period, research firm Urbanation said Monday. But the average number of sales per project was down, as builders unveil more new projects every week. There were 338 active condo projects in Toronto in the first quarter, a record high.

Comment: People forget to mention that over the past decade, house sales have dropped by half while condo sales have doubled. One went down while the other rose, almost matching each other. And that is just resales. With all the new people coming to Toronto every year, you would expect an increase – but there is, all the new condos. Looking at the stats we can see everything balancing out, it all makes sense. It is not like we just added 50,000 condo sales to the market.

Urbanation has identified the rising amount of unsold condo units as a factor that could derail the market. There were 15,554 unsold units at the end of 2011 – 27% more than a year earlier.

Comment: Weird, that is very different from Tridel’s number. But either way, the amount is actually 5% of total inventory, which is quite low.

Finance Minister Jim Flaherty recently suggested that developers in Toronto are prepared to build until sales evaporate, a scenario that he said could lead to a condo market crash.

Comment: No… When sales dry up, construction stops. The crane does not go up until 70-80% of units are sold, with 20-25% down on each. Then the bank funds it. Then the building starts. So if sales dry up, construction dries up. And that will be a gradual process, it will not stop overnight. It has been rising slowly (there were 129 projects under construction at the end of 2006 – now 5-1/2 years later there are only about 20-25 more. This did not explode overnight and it will not end that suddenly.

Twelve years ago, most of the new housing in Toronto was low-rise homes. Now most of it is high-rise towers. Construction of single homes is at all-time lows.

Comment: Because sprawl has stopped. Greenbelt policies prevent massive housing tracts. There is increased interest in urban living. Prices force first time buyers into condos. Immigrants like tower living. Investment condos provide rental housing. There are 10 different reasons why houses morphed into condos.

Immigration trends suggest that the Toronto census metropolitan area will need between 42,500 and 52,000 new dwellings a year. Only 28,500 were delivered last year, Mr. Diamond noted. Vacancy rates remain low.

Comment: And people are worried about over supply? We have house sales up 17% with listings up only 4%. And new condos are being built at half the rate of potential absorption. How are there too many?

“Every market is cyclical,” he said. “But Toronto has a great, great future. Unless something that emerges that’s going to throw this city completely off base, we have a lot of confidence.”

Comment: And what would that be? Oh right, no one knows…

Mr. Diamond (whose father was A.E. Diamond, a founder and the first chairman and CEO of Cadillac Fairview) was a municipal and planning lawyer for most of his career.

He has spent the past three years investing Diamondcorp’s first real estate investment fund, which raised $70-million from RioCan Real Estate Investment Trust, Sterling Silver Development Corp. and the Diamond family’s venture capital firm. It produced about 2,500 condo units in seven projects.

Mr. Diamond said all levels of government should change tax incentives and development fees to encourage the construction of larger condo units, such as three-bedrooms, rather than the smaller units that are dominating the current developments.

Comment: Yes, but only if they can be produced at a price competitive with houses. The average 3-bedroom condo is well north of 1,000sf and tends to cost $700-800k. Families can get a nice house in the east end for $500k or less. With a yard. How is a condo going to compete with that?

“If we did that, then I don’t think there’s any bubble in the city of Toronto at all, because we need to accommodate the population,” he said.

Comment: There you go. The condo boom is not a bubble, but is simply population driven. So simple and so true.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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